One objection, though. It's not quite right to infer that the shale boom was unprofitable solely on the basis of a long run of years with negative free cash flow (FCF). Because FCF is net operating profit minus capital expenditure, negative FCF could be caused by either 1/ low net operating profit or 2/ high capital expenditure.
In the case of shale, it's probably the latter. All that growth has to be financed somehow!
And indeed, the shale industry in recent years has decided to pull back on investment, and they're now showing enormous positive free cash flow
Point taken! It’s definitely the latter. And we’ve seen an incredible consolidation in the industry since 2020—now it’s definitely profitable in aggregate, given the FCF metrics.
Thought-provoking post!
One objection, though. It's not quite right to infer that the shale boom was unprofitable solely on the basis of a long run of years with negative free cash flow (FCF). Because FCF is net operating profit minus capital expenditure, negative FCF could be caused by either 1/ low net operating profit or 2/ high capital expenditure.
In the case of shale, it's probably the latter. All that growth has to be financed somehow!
And indeed, the shale industry in recent years has decided to pull back on investment, and they're now showing enormous positive free cash flow
https://www.bloomberg.com/news/articles/2022-05-05/u-s-shale-s-cash-bonanza-is-about-to-wipe-out-300-billion-loss
Point taken! It’s definitely the latter. And we’ve seen an incredible consolidation in the industry since 2020—now it’s definitely profitable in aggregate, given the FCF metrics.